22-year-old girl bought Estate of $88 million

Former Citigroup chairman Sandy Weill listed his 6,744-sq-ft apartment at 15 Central Park West for an astonishing $88 million in November, promising to donate the proceeds of the sale to charity.

Now comes news that Ekaterina Rybolovleva, the 22-year-old daughter of Russian billionaire Dmitriy Rybolovlev, is buying the condominium. Rybolovleva is currently studying at an undisclosed U.S. university and plans to stay in the apartment when visiting New York. According to a source familiar with the sale, she paid the full asking price of $88 million, setting a record for highest individual transaction in New York City history.

Here is the official statement from her representatives:

A company associated with Ekaterina Rybolovleva, daughter of a well-known businessman Dmitriy Rybolovlev, has signed a contract to purchase an apartment at 15 Central Park West, New York. The apartment is a condominium currently owned by the Sanford Weill Family.

Ms. Rybolovleva is currently studying at a US university. She plans to stay in the apartment when visiting New York. Ms. Rybolovleva was born in Russia, is a resident of Monaco and has resided in Monaco and Switzerland for the past 15 years.”

The apartment, in one of the toniest post-war buildings in Manhattan, has 10 rooms including 4 bedrooms, a wraparound terrace of more than 2,000 sq. feet, 4 bedrooms and 2 wood burning fireplaces.

[See also: Homes With Kitchens Worthy of Professional Chefs]

“This sale is an outlier. It works out to be about $13,000 per sq. foot, the highest on record, for anything, that has ever occurred,” says Jonathan Miller, chief executive of real estate appraiser Miller Samuel, “What is ironic is that when Sandy Weill bought it for less than half this amount, he paid the highest price per sq foot to date in that building, around, $6,400 per sq. foot. He is again setting a record.”

The previous New York City record had been set back before the market crash when investor Christopher Flowers paid $53 million for a townhouse at 4 east 75th Street. He resold the property on August 15 for just over $36 million.

There were two other very notable sales in the city this year. Russian composer Igor Krutoy paid a record $48 million for a condo at the Plaza in March, and a townhouse at 16 East 69th Street sold for $48 million in July.

Rybolovleva is the second daughter of a billionaire to make huge real estate news this year. Back in July, heiress Petra Ecclestone, daughter of UK Formula One billionaire Bernie Ecclestone, apparently paid $85 million for Spelling Manor, the 56,500-square foot mansion that was previously owned by Candy Spelling, widow of famed TV producer Aaron Spelling, whose works include the “Beverly Hills 90210,” “Charlie’s Angels,” and “Dynasty” series.

Rybolovleva’s father Dmitriy sold the majority of his stake in Uralkali, the fertilizer business that made him rich, for $6.5 billion in 2010.  He is already known in U.S. real estate circles for his May 2008 purchase of Donald Trump’s Palm Beach mansion, Maison de L’Amitie. He paid $95 million in cash for that residence, $25 million less than what Trump had originally asked. It was apparently the largest single residence price concession of all time.  He may not own that house much longer though. His wife Elena, who filed for divorce in Pam Beach court in 2009, is seeking transfer of ownership of the former Trump mansion.  He himself spends much of his time at his home in Monaco and is likely to buy the struggling French football club, AS Monaco.

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Spain looks safer than Italy as borrowing costs fall

A fan waves a Spain flag

Spain saw solid demand for its bonds on Thursday, paying more than 2 percentage points less to borrow over 5-years than Italy a day earlier as budget cuts helped ease concerns it could be among the next to fall in the euro zone's debt crisis.

But while the Treasury also paid much less to sell two 10-year bonds than a similar issue just a month ago, yields were still near euro-era highs amid doubts over leaders' ability to find a lasting solution to the bloc's debt crisis.

"A good auction ... they managed to sell quite a chunk. It won't help to calm these fears everyone in the market is having about funding in 2012, but Spain is considered a far more attractive credit than Italy," strategist at West LB, Michael Leister said.

Spain has been in the line of fire in the euro crisis since Greece was bailed out more than a year ago. But measures which have almost halved the budget deficit along with a massive banking restructuring program have taken some of the heat off.

Attention has turned instead to the euro zone's third largest economy, Italy, which has seen refinancing costs soar to unsustainable levels and its Prime Minister Silvio Berlusconi replaced by technocrat caretaker Mario Monti.

"The contrast with Italy is striking. Spain, despite its severe economic problems, is judged to be a safer credit," said Nicholas Spiro, economist at Spiro Sovereign Strategy.

"Italy is walking on very thin ice at the moment given the scale of its funding needs next year. Spain is better placed on this front and has more policy-making credibility in the eyes of investors."

The premium investors demand to hold Italian over Spanish debt rose to a new record of around 162 basis points on Thursday while Spain's spreads against German debt dropped more than 24 basis points following the auction.

SOCIALISTS TROUNCED

The centre-right People's Party (PP) trounced the Socialists in November 20 election as voters punished Prime Minister Jose Luis Rodriguez Zapatero for his handling of the economic crisis though his measures have kept Spain needing a Greek-style bailout.

Incoming Prime Minister Mariano Rajoy has said he will continue with the previous government's austerity measures and cut the budget shortfall from an expected 6.5 percent of GDP this year to 4.4 percent of GDP next year.

Pollsters say Spaniards are largely resigned to the idea of more cuts, but that sentiment could fade within a year if the economy does not bounce back from a prolonged slump.

Spain's economy stagnated in the third quarter and is widely expected to sink into its second recession in three years at the start of 2012 as domestic demand shows no sign of returning and exports are hit by the global slowdown.

Meanwhile, the burst property bubble has left the country's banks sitting on 176 billion euros ($227.94 billion) of potentially troubled real estate assets at end-June and struggling to raise capital to shore up balance sheets in a paralyzed market.

Rajoy has said his priorities when he takes office next week are to balance the public accounts, reform the labor market -- Spanish unemployment is more than double the European Union average -- and intensify bank restructuring efforts.

RISING COSTS

As market nerves rise over the future of the euro zone, Spain's government has found it increasingly expensive to issue bonds but with a debt-to-GDP ratio of around 68 percent, around 20 percentage points below the euro zone average, it has some margin.

Spain also faces a less pressing redemption calendar than Italy, with medium and long-term debt redemptions of nearly 50 billion euros in 2012 with none due until April.

Rome meanwhile faces redemption and coupon payments of around 100 billion euros between January and April, Reuters data shows.

The Spanish Treasury raised 6 billion euros from the auction on Thursday of three bonds in the primary market, far surpassing a target of 3.5 billion euros and meaning the Treasury has completed its end-of-year bond issuance goal.

The auction came as markets braced for a possible ratings downgrade after a disappointing summit of European Union leaders on Friday.

Spain sold 2.5 billion euros of a bond maturing January 31, 2016 at a yield of 4.023 percent, compared to 5.276 percent when it was last auctioned December 1. The bond was 2 times subscribed after 2.8 two weeks ago.

The bond maturing April 30, 2020, sold 2.2 billion euros at an average yield of 5.201 percent while a bond maturing April 30, 2021 sold 1.4 billion euros for 5.545 percent.

The last time Spain ran a primary auction a 10-year bill November 17, it paid an average yield of 6.975 percent, considered by most economists as unsustainable over the long term.

However, while the benchmark 10-year yield was down from recent highs during volatile trade, it was still far above prices paid from the average yields seen before June.

"These are still high levels of rates but they are a lot better than Italy's ones," strategist at Monument Securities Marc Ostwald said.

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Wall Street edges up on economy

Signs of strength in the labor market and manufacturing sector, as well as higher quarterly profit from FedEx, pushed U.S. stocks slightly higher on Thursday, but the mood was fragile as investors kept their eyes on Europe's festering debt crisis.

The data signaled a continuation of the now familiar tug of war between optimism about the U.S. economy and fears that Europe's debt crisis could spark a global recession.

Reflecting that struggle, indexes were off their highs of the morning and the Nasdaq bobbed around the breakeven mark, suggesting investors were hesitating before buying into the better-than-expected U.S. data.

The world economic outlook is "quite gloomy" and will require action by all countries to head off an escalating crisis that carries risks of a global depression, Christine Lagarde, the head of the International Monetary Fund, said on Thursday.

Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York said the question for investors is whether the U.S. economy can continue to grow in the event of a serious recession in Europe.

"Can the U.S. go it totally alone? No. But the rest of the world, with the exception of Europe, we are pretty positive about. We don't think it's going to fall apart," he said.

FedEx Corp (FDX.N) shares were up 5.3 percent at $81.36 after the package delivery company, seen as a bellwether of economic activity, reported higher-than-expected quarterly profit.

The news from FedEx was welcome after a number of high-profile companies warned about revenues and profits in recent days. On Thursday Honeywell (HON.N) said Europe's slowing economy would take a toll on orders. But the shares rose 1.2 percent after it forecast profit in line with expectations.

The Dow Jones industrial average .DJI rose 45.60 points, or 0.39 percent, at 11,869.08. The Standard & Poor's 500 .SPX added 4.07 points, or 0.34 percent, at 1,215.89. The Nasdaq Composite .IXIC fell 2.45 points, or 0.10 percent, at 2,536.86.

New applications for unemployment insurance fell to a 3-1/2 year low, suggesting a job market recovery was gaining speed, while a gauge of New York state manufacturing activity rose to its highest level since May.

"It all speaks to further stabilization and a very positive trend in the U.S. economy," said Peter Kenny, managing director at Knight Capital in Jersey City, New Jersey.

Wall Street fell for a third day on Wednesday to its lowest level in two weeks with the market highly sensitive to developments in Europe.

Spain saw bond yields fall in a well-received auction, raising roughly twice what the government had targeted. Equity markets have lately tracked European bond prices, using them as a gauge of risk appetite.
Novellus Systems Inc (NVLS.O) jumped 21.2 percent to $42.04 a day after it agreed to be bought by larger rival Lam Research Corp (LRCX.O) for $3.3 billion in stock.

Rite Aid Corp (RAD.N) reported a smaller-than-expected quarterly loss as a growing loyalty program and more flu shots helped sales, and the drugstore chain raised its outlook for the year. The shares rose 4.4 percent to $1.19.

Michael Kors Holdings Ltd (KORS.N) shares rose more than 20 percent on their New York Stock Exchange debut after the luxury goods company priced at $20 per share on Wednesday, above the expected range.

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Industrial output sees first drop since April

Industrial output declined in November for the first time in seven months as manufacturing activity slumped, countering recent signs of improvement in the economy.

Production in the industrial sector eased 0.2 percent last month, the first drop since April, following a 0.7 percent gain in October. Analysts in a Reuters poll had been looking for a 0.2 percent rise.

A measure of how fully firms are using available resources, capacity utilization, eased to 77.8 from 78.0.

The pullback in factory activity was led by a 3.4 percent decrease in motor vehicles and parts. But even excluding that drag, manufacturing output was still down 0.2 percent.

Mining production rose 0.1 percent, and there was a 0.2 percent rise for utilities.

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JPMorgan Chase cleans up checking account fee list

JPMorgan Chase & Co (JPM.N), the biggest U.S. bank, and two large credit unions have taken the lead in cleaning up the banking industry's fee-laden fine print for checking accounts, an advocacy group said on Thursday.

JPMorgan Chase, the Pentagon Federal Credit Union and the North Carolina State Employees' Credit Union have started presenting account fee schedules in simple, boxed tables of three pages or less, according to the Pew Health Group, the health and consumer-product safety arm of the Pew Charitable Trusts.

Fee disclosure documents for large banks typically run 111 pages and hide important fees from customers in technical fine print, according to an April report by Pew's Safe Checking in the Electronic Age Project. Bank fees became a focus of federal lawmakers in the aftermath of the credit crisis.

Many people have been surprised by fees they were charged, Pew researchers found in interviews with consumers. Fee disclosures are too dense for consumers to know better, said Susan Weinstock, director of the Pew project.

"It is basically impossible to comparison shop for a checking account," Weinstock said in an interview. She hopes the new tables will change that.

JPMorgan Chase is posting its first table online on Thursday for its most-used "Total Checking" account. The bank plans to roll out similar presentations for other types of accounts in the new year, Ryan McInerney, CEO of the company's consumer bank, told Reuters.

Another large bank and some regional banks and other credit unions are working to bring out simplified tables of their own soon, Weinstock said . She is calling on the government's new Consumer Financial Protection Bureau to require all banks to do the same.

Banks' fee revenue could come under pressure if it is easier for consumers to compare charges.

As JPMorgan Chase began to boil down the fees into a table, executives decided some were bad for business and had to go. For example, the bank dropped charges of $25 for closing an account within 90 days of opening it and $15 to receive a rush copy of an item.

"We think this will create more loyal customers and grow our business," McInerney said.

McInerney said the moves will pay off with higher revenues over time by winning over more customers.

JPMorgan Chase began work on the new disclosure shortly after Pew released its critical report in April. The bank tested the table with customers in focus groups and interviews, and then refined it , McInerney said.

Long legal disclosures of terms and conditions will continue to exist. For those who want to check the details, McInerney said the bank intends to embed Internet links to the fine print in online copies of its tables.

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U.S. leaps ahead, Europe debt woes touch Asia

U.S. jobless claims on Thursday fell to a 3-1/2-year low and a survey showed New York factories picked up speed this month, bucking gloomy economic trends set by Europe and Asia.

Stock index futures added to gains after the Labor Department revealed initial claims for state unemployment benefits dropped by 19,000 to 366,000 last week, the lowest level since May 2008.

And a business survey of New York factories provided more evidence that the U.S. economy is weathering the festering sovereign debt crisis in Europe, which is starting to crimp growth in emerging trade partners like China.

While the pace of decline in the euro zone's business economy unexpectedly slowed in December, surveys earlier on Thursday confirmed the region is almost certainly stuck in recession.

That leaves the United States as perhaps the only major Western power currently making a significant contribution to global economic growth.

"The data is all very in line with a modestly improving overall economy here in the United States," said Peter Kenny, managing director at Knight Capital in New Jersey.

"Stability in the U.S. economy is going to be a vital part of stabilizing global GDP. This comes at a very good time."

The New York Federal Reserve's "Empire State" general business conditions index rose to 9.53 from 0.61 the previous month. Economists polled by Reuters had expected a reading of 3.00.

The Philadelphia Federal Reserve's business activity indicator, another early gauge of private sector activity, is due at 1500 GMT and economists also expect it to rise sharply.

In the euro zone, Markit's flash composite purchasing managers' index (PMI), which corresponds closely with economic growth, rose unexpectedly in December to 47.9 from 47.0 last month.

But it has now lingered below the 50 line that divides growth from contraction for four months.

"(It) reinforces the notion that the euro zone economy is slipping into a mild recession rather than falling off a cliff," said Martin van Vliet, senior economist at ING.

The survey compilers warned against viewing its latest gauge of euro zone business as a turning point, especially since there is still a strong risk the euro zone sovereign debt crisis could spiral out of control.

RESOLUTION NEEDED

EU leaders last week took a historic step towards fiscal union last week, but pressure is building on reluctant euro zone paymaster Germany to take immediate, radical steps to solve the crisis.

A resolution to the crisis is all the more important as its repercussions spread through global economy. China saw its first year-on-year drop in foreign direct investment in 28 months in November.

The HSBC flash manufacturing purchasing managers' index, the earliest indicator of China's industrial activity, rose modestly to 49.0 in December from 47.7 but pointing to a monthly contraction in activity nonetheless.

Most economists gave a cautious welcome to the euro zone PMI data, which measures changes in the activities of thousands of businesses across the euro zone.

"All in all, despite the further pick-up in December, the PMI data still suggest that euro zone real GDP saw a marked contraction in the fourth quarter," said ING's van Vliet.

The Markit Eurozone Composite PMI, which looks at both the manufacturing and services sectors,

Furthermore, only France and Germany were responsible for the upturn in the index, while the euro zone's peripheral economies continued to struggle.

Markit said its data pointed to a quarterly economic decline of 0.6 percent in the euro zone in the final quarter of this year.

That would be twice as deep as the contraction expected by economists in a Reuters poll on Wednesday, which also forecast a 0.2 percent fall in the first three months of the new year. <ECILT/EU>

An escalation of the debt crisis could cause a far steeper contraction next year -- a scenario the Swiss National Bank warned on Thursday could not be ruled out, after holding its exchange rate cap on the franc against the euro for now.

There was one bright note on Thursday. The risk premium on benchmark Spanish bonds fell following a well-received bond auction that raised more than the government had targeted. <MKTS/GLOB>

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Olympus ex-CEO attacks Japan investors as comeback bid struggles

Japan's Olympus Corp ex-CEO Michael Woodford

The whistleblower in Japan's Olympus Corp scandal, ex-CEO Michael Woodford, blasted Japanese shareholders on Thursday for failing to stand up for him, amid signs that domestic and foreign investors are split over his campaign to be reinstated.

Woodford, an Englishman who was a rare foreign CEO in Japan, went public with his concerns over crooked accounting at Olympus after his dismissal in October, leading to the uncovering of a $1.7 billion fraud that has left the company badly weakened.

He is now lobbying shareholders of the maker of cameras and medical equipment to support his reinstatement and replace the disgraced board with a new team that he is assembling.

"We saw a shameful state of the company's finances yesterday, but not one Japanese shareholder stood up and said publicly 'Mr Woodford is right, thank you Mr Woodford', anything, a total, an utter silence," Woodford said, a day after Olympus released its restated accounts on Wednesday.

His comeback campaign has highlighted the contrasting opinions of foreign and Japanese shareholders on the future leadership of Olympus, which has been found to have carried on a $1.7 billion fraud to hide investment losses for 13 years.

At least three big foreign shareholders have backed Woodford's bid to return to the company where he spent three decades working his way up from salesman to CEO. But not one Japanese shareholder or lender has openly supported him since he blew the whistle, leaving him clearly frustrated.

Woodford also launched an emotional attack on the firm's current Japanese boss.

"Should that man be the president and custodian of one of Japan's iconic companies?" he said of Olympus President Shuichi Takayama, one of the directors who had voted unanimously to sack him after he had queried the firm's dubious book-keeping.

"How dare he!" Woodford added, calling Takayama's handling of the whole affair "Machiavellian."

Woodford also said he had discussed refinancing options for Olympus with private equity firms and investment banks, and also voiced concerns that Takayama was planning to raise money by placing new shares with a third party.

That would dilute the stakes of existing owners and weaken their hand in a proxy battle between Woodford and whoever the existing board chooses as its next CEO candidate.

"It would dilute the existing shareholders, so then I could not win a proxy fight," he said.

The existing board, led by Takayama, has said he and fellow directors will resign soon, to make way for a new board to be elected by shareholders at a meeting in March or April, and that the board wants to choose its successors before it quits.

It has set up an external panel to advise on board candidates and other management issues.

Takayama even suggested on Thursday the board would consider Woodford as a candidate for his old job, but few analysts gave the gesture any credence given the hostility between the pair.

Takayama, currently the most senior executive after several resignations since Woodford's departure, said he had no plans to meet Woodford, who some major Japanese shareholders and lenders privately oppose, according to a banking source.

"As of now, I have no plans to meet," he said.

Woodford says the board is discredited and has no right to choose its successors, and on Thursday expressed anger at signs that not all of the incumbent board would resign.

He is assembling his own team of candidates for a new board with himself at the helm.

NEED FOR FRESH CAPITAL OR TIE-UPS

Woodford also went public with a plea to meet the head of Sumitomo Mitsui Banking Corp (SMBC), the main lender to Olympus, a possible sign that he was having trouble getting access.

"My representatives have asked for a formal meeting with SMBC. I hope they at least give me the courtesy of listening to me," he said. The bank, which is the core banking unit of Sumitomo Mitsui Financial Group, said it had not received the request and declined comment.

The next CEO and board of Olympus face major challenges, starting with a need to repair the once-proud firm's balance sheet, which was revealed on Wednesday to be $1.1 billion weaker than had been previously disclosed in its fraudulent accounts.

Olympus shares slumped 20 percent on Thursday, with investors now concerned it might need to merge, sell assets or raise fresh capital.

Takayama said on Thursday the company was considering capital and operational tie-ups, among other options, to relieve the pressure on its balance sheet, which was shown to have a very thin layer of equity remaining after the restatements.

Olympus forecast its troubled camera business will make a loss in the current financial year, but said unit sales had risen 15 percent in the six months to September 30 from the same period a year earlier.

The firm, whose main income earner is its very profitable endoscope business, avoided automatic delisting from the Tokyo Stock Exchange by meeting Wednesday's deadline for producing its overdue second-quarter accounts, giving some initial relief to investors.

However, the 92-year-old firm can still be delisted if the exchange believes the accounting deceit was sufficiently grave.

Woodford said he favored private equity or a rights issue over a strategic alliance, which would rob Olympus of its independence. But rights issues, where existing shareholders can buy more shares on a pro-rata basis, are rare in Japan.

Olympus has lost more than half its market value since it sacked Woodford and the scandal erupted. Two top Olympus executives have been found to have masterminded the scheme to cook the books, and both have since resigned.

Olympus has been dogged by rumors of bid interest from rivals, such as fellow endoscope makers Fujifilm and Hoya, or from private equity since the scandal broke.

The Tokyo exchange said after the announcements that it was keeping Olympus on its watchlist for possible delisting.

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Small businesses hiring more online workers

When Casey McConnell started text messaging marketing company Qittle he took the traditional route of hiring onsite employees. But he soon realized it was more advantageous to hire workers online.

“We found it was easy to find these specialists or people that we could hire for a certain amount,” said McConnell, the CEO of Qittle. “We didn’t have the extra overhead and we just got the project done. It’s really easy for us to ramp up our needs or pull back using contractors. If we had an internal staff it’s pretty hard to fluctuate like that.”

Qittle’s preference to hire workers in the cloud is reflected in Elance’s recent survey that shows 83 percent of small businesses plan to hire half their workers online within the next 12 months. Only 10 percent of those surveyed plan to hire predominantly onsite workers (90 percent).

Elance, a marketplace for online workers, has posted more than 600,000 jobs ranging from programers to virtual assistants. Small businesses prefer to hire online because of flexibility, speed and economy of the process cost, according to Fabio Rosati, the CEO of Elance.

“So if you’re a small business owner, you can think of a hybrid model of hiring (online and onsite workers),” said Rosati. “You can think about what skills and what talent you need onsite. You can also decide what skill set you need to be in the cloud which is much more cost-effective and much more flexible.”

Elance’s Online Employment Report shows the number of businesses hiring online has increased 107 percent since last year. Elancers earned 51 percent more last year and earned a record $38 million in Q3 2011.

Rosati said more and more companies will decide to hire in the cloud. “I predict that at some point 99 percent of businesses will have between 5-10 percent of their hiring done online because it makes so much sense.”

But for McConnell, hiring online is the only way to go. Qittle plans to only hire workers from the cloud. “As a business we’d rather stay small and nimble and we’d rather contract out through individuals or businesses.”

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Sony eyes Vita push, feels Fitch heat

Sony Corp, set to report a $1 billion loss this year, is banking on a big slate of new software to drive sales of its new PlayStation Vita handheld games device, even as Fitch downgraded the Japanese electronics giant to a notch above junk.

Welshman Andrew House, who took the top job at Sony Computer Entertainment in September, must plot a much-needed success story for the Vita, negotiating a minefield of consumer gloom and competition from smartphones and tablet PCs such as Apple Inc's iPhone and iPad.

Sony, which has forecast a fourth straight annual loss this year, launches the Vita in Japan this weekend.

It hopes a package of 24 software titles at launch will help the gadget avoid the fate of rival Nintendo's 3DS, which flopped shortly after launch, forcing a hefty price cut.

"It's unprecedented for us to achieve that degree of publisher and development support ... we adopted a different approach to the lead-up to the platform in terms of our relationships with publishers and developers," House told reporters at Sony's Tokyo head office on Thursday.

He said he hoped the Vita would outsell its predecessor, the PlayStation Portable (PSP), which has shipped 73 million units since launching in late-2004.

The videogames unit made a first profit in 5 years in the year to March, as it squeezed production costs for the Playstation 3, boosting profits for the whole company. The unit's sales accounted for more than a tenth of Sony's 7 trillion yen in total revenue.

But costs involved in driving Vita sales may push the unit back into the red this year, adding to Sony's struggle with huge losses in televisions.

Sony needs the Vita to be a hit to ease the pain from its TV business, which is set for an annual loss of $2.2 billion, an eighth straight year of losses. Sony is looking to halve that loss next year, but has given few details on how it plans to get the business back into profit.

FITCH MOVE

The Fitch ratings agency turned up the heat by downgrading Sony to BBB- - a notch above non-investment, or junk, grade - from BBB, citing the group's weakened financial performance and the challenges it faces in recapturing its former strong position in key markets.

"A likely overall FY12 EBIT loss, excluding financial services, and an increase in debt driven by acquisitions will significantly weaken Sony's credit profile," said Nitin Soni, Associate Director in Fitch's Asia-Pacific Telecommunications, Media and Technology team.

Sony said in October it was taking over its mobile phone joint venture with Ericsson for $1.5 billion, and is also leading a group to buy EMI's music publishing operations in a deal valued at $2.2 billion.

"Of course, if the rating is downgraded it makes it more expensive for them to raise money, so it's not good," said Keita Wakabayashi, an analyst at Mito Securities.

"(Sony has) slashed its profit outlook for the current year and even if the North American market has improved slightly, European and Japanese markets and emerging markets are in a severe state. So downgrades are something we'll have to keep in mind."

VITA

The Vita, featuring a 5-inch OLED display and 3G connectivity, sold out in advance bookings in Japan, where buyers have rushed to upgrade from the PSP. Sony has not provided a unit sales target for the Vita.

The United States and Europe may pose a tougher challenge as a February 22 launch date for the Vita comes well after the crucial year-end holiday sales season.

"We've been told the PS Vita sold out on pre-bookings. How it sells next year depends on the software. If they can come up with something like Monster Hunter they will be able to sell a lot, but if they don't, prospects don't look so bright," said Mito's Wakabayashi, referring to a game title that drove sales of the PSP in Japan.

The challenge from smartphones and tablets comes on top of competition from long-standing domestic rival Nintendo, which aims to sell 16 million of its cheaper 3DS handheld games devices by March. Sony on Thursday said it was keeping to its target of selling 15 million PS3 game machines in the year through March.

Another rival, Microsoft, doesn't offer a portable device.

After a slump in sales, Nintendo slashed the price of its handheld gadget in August by about 40 percent to $170, compared with $249 for the PS Vita, or $299 for the 3G version.

The games industry has shrugged off the broader economic gloom and is forecast to top $81 billion by 2016, according to research firm DFC Intelligence, up 23 percent from this year and more than three times the size of the recorded music industry.

Much of that growth is likely to be in online, social and casual games, rather than the traditional hardware model that has been Sony's staple.

Japan's software houses are pouring resources into mobile social gaming, and industry executives have expressed some concern over the future for dedicated handheld gaming devices.

Sony was criticized in June, when it announced the pricing of the Vita, for making the gadget too expensive, and has teamed up with U.S. telecoms firm AT&T as Vita's exclusive carrier. Many U.S. iPhone users have complained that AT&T provided poor connectivity.

Sony shares closed down 1.5 percent on Thursday, their lowest in two weeks.

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